Vacant residential land tax applies from 1 January 2018 to homes in inner and middle Melbourne that are vacant for more than six months in the preceding calendar year. See the Vacant residential land tax commentary in our sale and purchase guides.
VIC – Land tax smart form for deceased estates
New land tax online smart form Deceased estate – Commencement or completion of administration (LTX-Trust-18).
This form replaces the paper forms LTX-Trust-13 and LTX-Trust-14, which will not be accepted beyond 30 September 2017.
VIC – State Revenue Office amendments
From 1 July 2017:
- exemption of transfer duty for transfers between spouses is only available for principal place of residence. Transfers following breakdown of relationship are unchanged and the exemption continues to apply to all properties.
- off-the-plan duty concession is restricted to properties acquired by owner/occupiers who are eligible for the principal place of residence or first home buyer duty concessions.
- First Home Buyers:
- Who purchase a property to the value of $600,000 will pay no duty, with concessions available for properties between $600,000 and $750,000.
- Who purchase in regional Victoria a new home to the value of $750,000 may apply for the First Home Owner Grant of $20,000. Criteria includes the property must be the applicant’s principal place of residence for a continuous period of 12 months, moving in within 12 months of completion.
- From 27 June 2017 Australian Defence Force personnel enrolled to vote in Victoria on duty or on leave are exempt from the residence requirement for the First Home Owner Grant.
Land Tax
From 1 January 2018, vacant residential properties in the inner and middle ring of Melbourne will be subject to a vacant residential land tax of 1 per cent of the property’s capital improved value. A property will be considered vacant if it is unoccupied for six months or more in a calendar year. The six months does not need to be continuous. There are exemptions for many properties including for vacant land.
SA – Revenue SA changes from 22 June 2017
Off the plan apartments.
A $10 000 grant will be provided to eligible off-the-plan apartment purchasers where the contract is entered into between 22 June 2017 and 30 September 2017.
Off-the-plan stamp duty concession.
From 22 June 2017 the off the plan stamp duty concession no longer applies to foreign purchasers. Generally the concession has been extended until 30 June 2018 .
Land tax exemption
A five year land tax exemption will apply to eligible apartments bought off-the-plan where the contract is entered into between 22 June 2017 and 30 June 2018.
Foreign purchasers – From 1 January 2018
A stamp duty surcharge of 4% will apply to foreign purchasers of South Australia residential property.
Land tax – Part 2
By Russell Cocks, Solicitor
First published in the Law Institute Journal
Last month’s column considered the imposition of land tax and its adjustment at settlement of a conveyancing transaction.
Land tax is distinguished from other outgoings by four attributes:
- thresholds, below which tax is not imposed;
- aggregation of ownership;
- an increasing rate of tax based on value; and
- exemptions.
The combination of aggregation and the increasing rate of tax expose a purchaser to a liability to contribute to ‘excessive’ land tax in some circumstances, and last month’s column explained how the ‘single holding’ basis of adjusting protects purchasers in this regard.
Principal place of residence exemption
Land may be exempt from land tax on the basis of the principal place of residence (PPR) exemption. A property owned and occupied by a ‘natural person’ is exempt from land tax. This is irrespective of the land value of that property and means that land tax is rarely a factor in residential conveyancing. But ‘unusual’ transactions present from time to time, and it is probably the unfamiliarity with land tax in the residential environment that creates problems.
The key to understanding this exemption is that it is based on the current use of the property, not an intended use. If the current use is as the vendor’s PPR, then the property is exempt for the current year. The upside of this for a purchaser is that, if the vendor has established the PPR exemption, it will not be taken away in the current year and no adjustment is necessary, even if the purchaser does not intend to use the property as a PPR. The purchaser will be liable for land tax in the subsequent year, but not in the year of acquisition.
The downside is that, if the vendor has not established the PPR in the year of sale, the purchaser will still be obliged to adjust land tax (on a single holding basis) even if the purchaser intends to occupy the property as the purchaser’s PPR. The exemption will not be available until the subsequent year.
This scenario can also arise if the vendor has purchased before selling. The vendor settles their purchase and advises the State Revenue Office that their new property is their PPR. If they retain ownership of their ‘old’ property beyond 31 December in that year, the old property is likely to be assessed for land tax as it is no longer exempt as a PPR. Disputes may arise at settlement of that property in the new year as the vendor’s statement, prepared at the time of sale, will very likely not reveal a potential land tax liability as it was prepared in anticipation of the sale of the PPR in the previous taxing year.
Special land tax
Land tax at a premium rate is imposed on some properties owned by trustees, and the land tax threshold in respect of such properties is $25,000 rather than $250,000. This means that a purchaser of such a property would, perhaps unexpectedly, face an obligation to adjust land tax in the year of acquisition, notwithstanding that the purchaser is a natural person and would not ordinarily be liable for land tax. This situation is covered by GC 15.2(c) of the 2008 prescribed contract of sale, which provides that adjustments are to be effected on the basis that ‘the vendor is taken to own the land as a resident Australian beneficial owner’. On that basis the premium rate does not apply and the threshold is $250,000. Adjustments would therefore be effected on a single holding basis, with the normal threshold and standard rates. In this manner, the burden of special land tax falls on the vendor, not the purchaser.
Special conditions
The 2008 contract of sale is an industry standard, but its use is not compulsory. It is permissible for a vendor to change the method of adjustment of land tax by special condition, and purchasers must be careful to check whether this has been done in any particular contract. Property developers in particular may seek to transfer responsibility for land tax to a purchaser from the date of contract rather than from the conventional date of settlement. This can have the effect of requiring the purchaser to bear an unexpected land tax burden and, if coupled with removal of the ‘single holding’ basis of assessment, can have a significant downside for a purchaser, particularly in the case of a long settlement period that may extend beyond 31 December. This exposes the purchaser to a share of land tax in the year of contract and the whole of the land tax, at the vendor’s rate, in the year of settlement – often a nasty surprise.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.
Land tax – Part 1
By Russell Cocks, Solicitor
Published in 2011, First published in the Law Institute Journal
Land tax is imposed by the state government as a source of revenue. In this respect it is similar to stamp duty or taxes on gambling, and it is undoubtedly an important revenue stream for government. Essentially it is a wealth tax designed to raise revenue from taxpayers who own valuable, commercial land. Thus land tax:
- has a threshold, so that ‘cheap’ land is not taxable;
- is calculated on the unimproved value, so that the value of improvements to the land, such as buildings, is not taxable;
- is calculated on the aggregate of all land owned by the vendor;
- is calculated on a sliding scale, so that more valuable land attracts tax at an increasing rate, known as an ad valorem rate; and
- has a number of exemptions, so that the principal place of residence (PPR) and farming land, amongst others, are not taxable.
These aspects may be contrasted with other outgoings, such as municipal rates, that are generally based on the improved value, apply universally and are at a fixed rate. Thus land tax provides a special challenge in respect of adjustment of outgoings at settlement of a conveyancing transaction.
Adjustments
Adjustments are meant to result in the vendor and purchaser each paying a fair share of the outgoings relating to a property in the year of sale/purchase. Thus rates and charges need to be apportioned between the vendor and purchaser at settlement, so as to result in the vendor paying those outgoings up to and including the day of settlement and the purchaser being responsible for outgoings after settlement. The process is therefore governed by the agreement between the parties – generally general condition (GC) 15 of the 2008 contract – and the provisions of legislation establishing those outgoings, the Land Tax Act 2005.
Conceptually the adjustment process is simple and, in the case of most outgoings, remains so in practice. The current rate or charge is apportioned over the year between vendor and purchaser. If the charge is paid as at the date of settlement, the apportionment will result in an increase in the amount paid to the vendor at settlement. If the rate or charge is unpaid, the usual way to adjust is to treat the outgoing as paid, resulting in the same increase in the amount due at settlement to the vendor as if the rate or charge had have been paid, and then draw a cheque from the amount due to the vendor for the full amount of the outgoing and forward that cheque to the rating authority after settlement in payment of those rates, thus complying with s 175 Local Government Act 1989. In this way the parties have contributed to payment of the outgoings in proportion to their length of time of ownership in the year of acquisition.
Adjustment of land tax
The fact that land tax has a threshold – currently $250,000 – means that land tax will not be a factor in the sale of ‘cheap’ land. The fact that it is calculated on the unimproved value of the land, ignoring the value of improvements, effectively extends this threshold so that, whilst a property may have a capital improved value of $1 million because of the improvements erected on the land, it will not be subject to land tax if the land itself has a value below $250,000.
The distinguishing feature about land tax when compared with other outgoings is its ad valorem nature. Thus a vendor of land that exceeds the threshold will pay land tax at a higher rate as the value of the land increases (0.2% above $250,000, increasing to 2.25% over $3 million). Further, land tax is calculated on this increasing scale on the aggregated value of the vendor’s land and then apportioned across the vendor’s total land holdings. Thus a vendor whose total land holdings are valued at $3 million will pay much more tax on one lot valued at $250,000 than a person who only owns one lot worth $250,000.
A purchaser is therefore exposed to being obliged to adjust land tax at an ‘inflated’ rate simply because the vendor owns other land. GC 15.2(b) of the contract recognises this possibility and requires adjustment of land tax to be on the basis that ‘the land is treated as the only land of which the vendor is owner’ – the so-called ‘single holding’ basis. The property sold is isolated from the vendor’s other land holdings; and a calculation of whether, and how much, the purchaser must contribute to the vendor’s land tax is made on that basis. This additional information is included on the back of the Land Tax Certificate.
Next month’s column will consider the impact of the PPR exemption, the imposition of special land tax on trusts and the effect of special conditions in contracts.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.